Facts of the Case

The petitioner, Tvl. V.N.S. Construction, represented by its Proprietor K. Vetrivel, challenged the assessment order dated 29.01.2026 passed by the respondent under Section 74 of the TNGST Act, 2017 for the assessment year 2019-20.

The assessment proceedings arose from an alleged suppression of turnover based on differences between the turnover reflected in Form GSTR-7, representing TDS deductions, and the turnover reported in GSTR-3B/GSTR-9.

The respondent treated the figures reflected in GSTR-7 as additional taxable turnover and raised a tax demand of Rs.19,15,554/- together with interest and penalty under Section 74 of the TNGST Act. The respondent proceeded on the assumption that the petitioner had failed to produce relevant work orders for the assessment year 2019-20.

The petitioner’s case was that the services had been rendered to the TWAD Board under contracts relating to operation and maintenance of public water supply schemes. According to the petitioner, such services were exempt under Notification No.12/2017-Central Tax (Rate). The petitioner further relied upon Clause 4.12 of the bid document, which specifically stated that GST was not applicable to the contract.

The petitioner maintained that work orders and supporting records for all relevant assessment years, including FY 2019-20, had been furnished, but the respondent overlooked the relevant documents.

Issues Involved

  1. Whether a demand under Section 74 of the TNGST Act could be sustained merely on the basis of differences between turnover reflected in GSTR-7 and turnover reported in GSTR-3B/GSTR-9.
  2. Whether GSTR-7 TDS figures could, by themselves, be treated as additional taxable turnover so as to establish suppression of turnover.
  3. Whether the respondent was required to independently examine the nature of the services, contractual terms and eligibility for exemption under Notification No.12/2017-Central Tax (Rate).
  4. Whether the assessment order suffered from non-consideration of the petitioner’s work orders, bid documents and exemption-related records.
  5. Whether the petitioner was entitled to a fresh opportunity of hearing and reconsideration of the assessment.
  6. Whether remand could be granted without imposing any pre-deposit or other condition where the underlying supply was claimed to be exempt from GST.
  7. Whether bank account attachment made pursuant to the impugned assessment order could survive after the assessment order itself was set aside.

Petitioner’s Arguments

The petitioner contended that the services were rendered to the TWAD Board under contracts concerning operation and maintenance of public water supply schemes and were exempt under Notification No.12/2017-Central Tax (Rate).

It was submitted that Clause 4.12 of the bid document specifically stated that GST was not applicable to the contract.

The petitioner argued that work orders and supporting records had been furnished for all assessment years, including FY 2019-20, but the respondent failed to properly examine the documents.

It was further contended that Form GSTR-7 merely reflected TDS deductions and could not, by itself, determine taxability or establish suppression of turnover.

According to the petitioner, the respondent failed to independently examine:

  • the nature of the services rendered;
  • the contractual terms;
  • the work orders;
  • the bid documents; and
  • the petitioner’s eligibility for GST exemption.

The petitioner also contended that it had actively participated in the proceedings and submitted detailed replies together with work orders, bid documents and exemption-related records. However, the respondent proceeded on an erroneous factual assumption that documents relating to FY 2019-20 had not been furnished.

The petitioner asserted that the explanation concerning exempt services and applicability of the exemption notification had been mechanically rejected without adequate reasons, thereby denying effective consideration of its objections and resulting in violation of the principles of natural justice.

Respondent’s Arguments / Revenue’s Position

The respondent’s assessment proceeded on the basis that there was suppression of turnover arising from differences between the turnover reflected in GSTR-7 and the turnover reported in GSTR-3B/GSTR-9 for AY 2019-20.

The GSTR-7 figures were treated as additional taxable turnover, resulting in a tax demand of Rs.19,15,554/- together with interest and penalty under Section 74 of the TNGST Act.

The respondent also proceeded on the assumption that the petitioner had failed to produce the relevant work orders for the assessment year 2019-20.

Before the High Court, the Revenue was represented by the learned Government Advocate.

Court Order / Findings

The Madras High Court considered:

  • the nature of the discrepancies noted by the Department;
  • the explanation offered by the assessee on merits; and
  • the reasons placed before the Court concerning the opportunity in the assessment proceedings.

The Court held that an opportunity could be granted to the assessee to present its submissions and produce relevant supporting documents before the respondent assessing officer.

The Court specifically observed that it had been extending such opportunities on equitable grounds, ordinarily under appropriate conditions. However, in the present case, since the commodity/supply in question was treated by the Court as exempt from GST, an opportunity was granted to the petitioner-assessee without any condition.

Accordingly, the writ petition was allowed on the following terms:

  1. The impugned assessment order dated 29.01.2026 was set aside.
  2. The matter was remanded back to the respondent.
  3. The assessee was directed to appear before the respondent without fail and submit its reply and documents in support of its claim.
  4. The respondent was directed to consider the matter afresh and pass orders in accordance with law.
  5. Since the impugned assessment order was set aside, any attachment of the bank account made pursuant to that order was also directed to stand raised.
  6. No order as to costs was passed.
  7. The connected miscellaneous petition was closed.

Important Clarification

The judgment is particularly significant because the High Court did not treat the GSTR-7 turnover/TDS data as conclusive for sustaining the disputed Section 74 assessment without proper examination of the assessee’s substantive explanation and supporting documents.

The petitioner’s specific case was that GSTR-7 merely reflected TDS deductions and could not, by itself, determine taxability or establish suppression of turnover. The petitioner also relied upon the nature of the services, contractual terms, work orders and exemption under Notification No.12/2017-Central Tax (Rate).

A further important feature of the order is that the High Court granted a fresh opportunity without imposing any condition, expressly noting that in the present case the commodity/supply was exempt from GST.

The judgment also clarifies the consequential effect of setting aside the assessment order: any bank account attachment made pursuant to the impugned order was directed to stand raised.

The order is a remand order. Therefore, the assessing authority must reconsider the petitioner’s reply, documents and exemption claim afresh and pass orders in accordance with law.

Sections

Section 74 of the TNGST Act, 2017 – Assessment/determination proceedings invoked by the respondent in raising the disputed tax demand together with interest and penalty.

Article 226 of the Constitution of India – Constitutional writ jurisdiction invoked by the petitioner for issuance of a Writ of Certiorarified Mandamus.

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783065553_405.pdf

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